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          How the Durable Power of Attorney

                        for Finances Works

Here's the simple way to arrange for someone to handle your finances if you can't.

A durable power of attorney for finances is a simple, inexpensive and reliable way to arrange for someone to make your financial decisions should you become unable to do so yourself. It's also a wonderful thing to do for your family members. If you do become incapacitated, the durable power of attorney will likely appear as a minor miracle to those close to you.

That's because if you become incapacitated and you haven't prepared a durable power of attorney for finances, a court proceeding is probably inescapable. Your spouse, closest relatives or companion will have to ask a court for authority over at least some of your financial affairs.

The Attorney-in-Fact's Job

When you create and sign a power of attorney, you give another person legal authority to act on your behalf. This person is called your "attorney-in-fact" or, sometimes, your "agent." The word "attorney" here means anyone authorized to act on another's behalf; it's most definitely not restricted to lawyers.

Commonly, people give an attorney-in-fact broad power to handle all of their finances. But you can give your attorney-in-fact as much or as little power as you wish. You may want to give your attorney-in-fact authority to do some or all of the following:

< use your assets to pay your everyday expenses and those of your family

< buy, sell, maintain, pay taxes on and mortgage real estate and other property

< collect Social Security, Medicare or other government benefits

< invest your money in stocks, bonds and mutual funds

< handle transactions with banks and other financial institutions

< buy and sell insurance policies and annuities for you

< file and pay your taxes

< operate your small business

< claim property you inherit or are otherwise entitled to

< transfer property to a trust you've already created

< hire someone to represent you in court, and

< manage your retirement accounts.


The attorney-in-fact must always act in your best interests, maintain accurate records, keep your property separate from his or hers and avoid conflicts of interest.

When a Durable Power of Attorney Takes Effect

A durable power of attorney can be drafted so that it goes into effect as soon as you sign it. Or you can specify that the durable power of attorney does not go into effect unless a doctor certifies that you have become incapacitated. This is called a "springing" durable power of attorney. It allows you to keep control over your affairs unless and until you become incapacitated, when it springs into effect.

You must specify that you want your power of attorney to be "durable." If you don't, it will automatically end if you later become incapacitated. (Or, if your document is springing, it will never take effect at all.)

Creating a Durable Power of Attorney for Finances

To create a legally valid durable power of attorney, all you need to do is properly complete and sign a fill-in-the-blanks form that's a few pages long. Some states have their own forms, but it's not mandatory that you use them.

Some banks and brokerage companies have their own durable power of attorney forms. If you want your attorney-in-fact to have an easy time with these institutions, you may need to prepare two (or more) durable powers of attorney: your own form and forms provided by the institutions with which you do business.

You must sign the form in front of a notary public. In some states, witnesses must watch you sign. If your attorney-in-fact will have authority to deal with your real estate, you also need to put a copy on file at the local land records office. (In just two states, North and South Carolina, you must record your power of attorney at the land records office for it to be durable.)

When a Durable Power of Attorney Ends

Your durable power of attorney automatically ends at your death. That means that you can't give your attorney-in-fact authority to handle things after your death, such as paying your debts, making funeral or burial arrangements or transferring your property to the people who inherit it. If you want your attorney-in-fact to have authority to wind up your affairs after your death, use a will to name that person as your executor.

Your durable power of attorney also ends if:

You revoke it. As long as you are mentally competent, you can revoke a durable power of attorney at any time.

A court invalidates your document. It's rare, but a court may declare your document invalid if it concludes that you were not mentally competent when you signed it, or that you were the victim of fraud or undue influence.

You get a divorce. In a handful of states, including Alabama, California, Colorado, Illinois, Indiana, Minnesota, Missouri, Pennsylvania, Texas, Washington and Wisconsin, if your spouse is your attorney-in-fact and you divorce, your ex-spouse's authority is automatically terminated.

No attorney-in-fact is available. To avoid this problem, you can name an alternate attorney-in-fact in your document.

Download a generic Springing Durable Power of Attorney Form: PDF format | ZIP format

 

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C. Francis Baldwin
chasbaldwin@surewest.net
Updated Wednesday, May 26, 2004